UPDATE 2-CGI exiting low-margin markets, eyes M&A in cyber security

Reuters Staff

3 Min Read

(Adds comments from CEO interview)

By Allison Lampert and Alastair Sharp

MONTREAL/TORONTO, July 29 (Reuters) - CGI Group Inc , the information systems and management consultancy, said on Wednesday it would target acquisitions in cyber security while exiting some markets entirely, as it reported third-quarter profit and revenue that missed estimates.

The chief executive of Canada’s largest tech company called cyber security a high-growth and high-margin sector that CGI is already targeting with the recruitment of new workers.

“We are hiring people. The issue with that is that there are not enough of them,” CEO Michael Roach said in an interview at CGI’s Montreal headquarters.

“We’re already very large in cyber but the rate of growth there and the fact that it’s globalized so rapidly means that customers are looking for professional firms like CGI to help them address the threat.”

With demand boosted by high-profile incidents such as last week’s hacking of the cheating spouses website Ashley Madison, cyber security was listed by CGI as one of the top five industry trends identified through internal interviews with 1,000 clients in 2015.

Revenues generated from cyber security have yielded double digit growth on a year-over-year basis, Roach said. He added that cyber profit margins should be higher than those in most other sectors after initial capital costs, such as investing in new facilities, are sunk.

“It (cyber security margin) would be on the higher end over time of the mix equation of a typical IT services company,” he said.

Roach said earlier today that CGI has compiled a short list of 85 potential acquisition targets that would help it grow by delving deeper into industries, three years after going wide with its Logica acquisition at a price of 1.7 billion pounds ($2.65 billion) in 2012.

Roach said the company was getting out of or avoiding low-margin markets in the Middle East and Latin America, with the exception of Brazil, and that the U.S. utilities market was underserved and represented an opportunity.

CGI said it signed C$2.2 billion in contracts in the period, down from the C$2.5 billion a year ago.

Sales were hurt by the emerging market exits and by delays in business with the U.S. federal and the UK governments.

Net income rose to C$257.2 million, or 80 Canadian cents per share, in the three months to June 30, from C$225.1 million, or 71 cents a share, a year earlier. Revenue slipped 4 percent to C$2.56 billion.